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Weekly investment update – Transitory or persistent?

Stronger inflation data in the US again fuels the ‘transitory-versus-persistent’ debate on the fundamental nature of inflationary pressures. It is a discussion that has further to run. Although as fickle as ever, bond markets seem to be adhering to…



Stronger inflation data in the US again fuels the ‘transitory-versus-persistent’ debate on the fundamental nature of inflationary pressures. It is a discussion that has further to run. Although as fickle as ever, bond markets seem to be adhering to the ‘transitory’ school of thought.

Covid-19 – Further headwinds

New cases have continued to climb around the world and are now at 440 000 per day, up from 390 000 last week. A rise in cases in Asia, Europe, and North America has offset a decline in South America over the past week.  In the UK, where the Covid situation is considered to be 8-12 weeks ahead of continental Europe, new cases have accelerated to above 30 000 per day.

For advanced economies with better vaccine coverage, the consensus view for the moment appears to be that the spread of the Delta variant will not translate into renewed lockdowns. This analysis is supported by the still low hospitalisation rates. A more significant risk is arguably that rising case numbers dampen consumer confidence and delay the recovery in household spending.

In the US, a voting member of the rate-setting Federal Open Markets Committee warned last week that the spread of the Delta variant and low vaccination rates in some parts of the world threatened the global recovery. Mary Daly urged caution in removing monetary support for the US economy and suggested one of the biggest risks to global growth was a premature declaration of victory over Covid. The president of the Federal Reserve Bank of San Francisco went on to warn that if the global economy cannot boost vaccination rates to overcome Covid rapidly, US growth faced a headwind.

More caution from the US Federal Reserve

The minutes for the June meeting of the FOMC offered no additional hawkish elements to further roil markets which had not expected US central bank officials to predict they would be raising interest rates sooner and more aggressively than they had signalled earlier this year.

If anything, in the minutes, FOMC participants messaged caution when assessing economic progress and the odds of the Fed tapering its asset purchases, while underscoring uncertainty and the associated high bar for decision-making.

Fed Chair Jay Powell is expected to deliver a similar message to Congress this week ahead of the FOMC meeting on 25-27 July.

However, US inflation again surged in June

Data published this week showed the pace of US consumer price increases accelerated unexpectedly in June. This challenges the view within the Fed that high inflation during the US recovery will be temporary. The consumer price index rose at the fastest pace since August 2008, up by 5.4% from the previous year. This is well above the 5% rise reported in May and the 4.9% consensus forecast.

On a monthly basis, prices rose by 0.9% for the biggest single-month jump since June 2008. The core data (stripping out volatile items such as food and energy) showed US inflation rose from 3.8% YoY in May to 4.5% in June.

Price rises have so far been most significant in sectors directly affected by the coronavirus pandemic.

Source: BNP Paribas Asset Management, Bloomberg as of 13/07/2021

Travel-related expenses such as airfares have soared, while a semiconductor shortage has contributed to a jump in the prices of used cars. One-third of the rise in the CPI in June was due to a record jump in previously-owned car prices. They rose by 10.5% in June from the previous month.

Car prices have been zooming away

The report shows reopening-sensitive sectors (used cars, rental cars, vehicle insurance, lodging, airfares, and food away from home) dominating price pressures for a third straight month.

Car prices, especially used car prices, have been surging thanks to a combination of high demand from rental car companies (who let their fleets dwindle in the early months of the pandemic), buying appetite boosting stimulus cheques from the administration and severe (semiconductor) bottlenecks in car production.

Auction data for used cars suggests the worst of the price pressures should be behind us soon, and media reports from Taiwan say that waiting times for semiconductors for use in automobiles are shrinking. Taken together, that implies price pressure should ease in the months ahead.

One area where prices are rising for non-transitory reasons is in housing. House prices are hitting the roof as upper income consumers, flush with savings and benefiting from very low mortgage rates, search for property. However, as asset prices, these have no more place in the CPI than equity prices do. What matters for inflation is rents. These have begun to pick up as the labour market improves.

Temporary or time for a taper?

The Fed has continued to characterise rising inflation as ‘transitory’. The pressures should fade as Covid-19 lockdowns ease further and supply catches up with pent-up demand. At their meeting in June, Fed officials predicted that their preferred gauge of core inflation would rise by 3% this year, before falling back down to 2.1% in 2022.

This latest surprisingly high inflation report could put pressure on the Fed to consider slowing monetary stimulus by reducing its asset purchases more quickly than previously thought. Should the Fed continue to make quantitative easing (QE) asset purchases of USD 120bn per month? Chair Powell’s testimony to Congress on Thursday (and the August Jackson Hole conference) could provide opportunities for hints with regard to an upcoming taper.

US bond yields seesaw

US government bonds seesawed after the strong inflation data: yields initially rose further from the lows (at 1.25% last week) seen since the Fed’s monetary policy meeting in June and its ‘dot plot’ forecasts which had been as hawkish.

Subsequently, a weak auction of 30-year US Treasury debt jolted markets. Yields of the benchmark 10-year US Treasury rose by 0.05 percentage points on the day to 1.42%.

Keep an eye on oil prices

In the second week of March 2020, the Organisation of Petroleum Exporting Countries (known as OPEC, but expanded to ‘OPEC+’ after Russia joined its deliberations) held a disastrous meeting in which it failed to agree on production levels. As a result, the oil price plummeted.

Last week, OPEC+ again failed to reach an agreement on production increases. The result, this time, has been to push the oil price upward. Brent crude has now risen by almost 400% since last year’s low and at USD 76/barrel, it is approaching its peak from 2018.

The rise in oil prices is expected to lift inflation further globally. Moreover, the recent rebound in oil prices will continue to support inflows into energy-related stocks and the US high-yield energy sector.

Upcoming US economic data – Retail sales

Retail sales data is expected to show elevated growth in June, with the consensus expecting a 0.4% month-on-month (MoM) rebound.

The bottom line remains that retail sales are well above their pre-Covid trend. We also note that as the economy continues to reopen and normalise, services will likely comprise the bulk of the catch-up in consumer spending.

A strategy update at the ECB

In the past, the European Central Bank was generally considered to have a slightly hawkish tilt (relative to other central banks). Its mandate for price stability was interpreted as calling for inflation to remain close to, but below 2%. The ECB’s strategy review, its first since 2003, has resulted in a modest update, aimed at making its goals clearer.

From now on, the ECB will now have a symmetric inflation target; inflation that is either below or above 2% will be ‘equally undesirable’. Additionally, the ECB will tolerate a transitory period of ‘overshooting’ if a sustained period of near-zero interest rates threatens the central bank’s credibility in hitting its inflation target.

This new target arguably does away with any hawkish bias that may have contributed to the ECB consistently undershooting its inflation target since the 2008 financial crisis. ECB President Lagarde confirmed that unconventional tools such as QE would remain part of the ECB’s armoury.

This shift represents an adjustment rather than an overhaul of ECB monetary policy. For example, unlike the Fed, the ECB will not target ‘average inflation’, allowing prices to rise faster to compensate for past shortfalls. A change to include housing in its chosen measure of inflation is limited to the cost of owner-occupied housing — which usually changes only modestly year-to-year — rather than actual house prices.

Last but certainly not least, a ‘climate action plan’ aims to ensure that companies whose bonds the ECB purchases are acting in line with the goals of the Paris climate accords.

A dovish measure from China’s central bank

To counter China’s current economic slowdown, the People’s Bank of China has the reserve requirement ratio (RRR) to enhance support for the real economy and micro, small and medium-sized businesses.

The news was a positive surprise to the market given the contraction in credit and the economic slowdown over recent owing to tardy fiscal expenditure and tightening policies in the property and internet space. The central bank’s move was seen as pre-emptive. It suggests room for manoeuvre should the challenges worsen.

Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. The views expressed in this podcast do not in any way constitute investment advice.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

Writen by Andrew Craig. The post Weekly investment update – Transitory or persistent? appeared first on Investors' Corner - The official blog of BNP Paribas Asset Management, the sustainable investor for a changing world.

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Four burning questions about the future of the $16.5B Novo-Catalent deal

To build or to buy? That’s a classic question for pharma boardrooms, and Novo Nordisk is going with both.
Beyond spending billions of dollars to expand…



To build or to buy? That’s a classic question for pharma boardrooms, and Novo Nordisk is going with both.

Beyond spending billions of dollars to expand its own production capacity for its weight loss drugs, the Danish drugmaker said Monday it will pay $11 billion to acquire three manufacturing plants from Catalent. It’s part of a broader $16.5 billion deal with Novo Holdings, the investment arm of the pharma’s parent group, which agreed to acquire the contract manufacturer and take it private.

It’s a big deal for all parties, with potential ripple effects across the biotech ecosystem. Here’s a look at some of the most pressing questions to watch after Monday’s announcement.

Why did Novo do this?

Novo Holdings isn’t the most obvious buyer for Catalent, particularly after last year’s on-and-off M&A interest from the serial acquirer Danaher. But the deal could benefit both Novo Holdings and Novo Nordisk.

Novo Nordisk’s biggest challenge has been simply making enough of the weight loss drug Wegovy and diabetes therapy Ozempic. On last week’s earnings call, Novo Nordisk CEO Lars Fruergaard Jørgensen said the company isn’t constrained by capital in its efforts to boost manufacturing. Rather, the main challenge is the limited amount of capabilities out there, he said.

“Most pharmaceutical companies in the world would be shopping among the same manufacturers,” he said. “There’s not an unlimited amount of machinery and people to build it.”

While Novo was already one of Catalent’s major customers, the manufacturer has been hamstrung by its own balance sheet. With roughly $5 billion in debt on its books, it’s had to juggle paying down debt with sufficiently investing in its facilities. That’s been particularly challenging in keeping pace with soaring demand for GLP-1 drugs.

Novo, on the other hand, has the balance sheet to funnel as much money as needed into the plants in Italy, Belgium, and Indiana. It’s also struggled to make enough of its popular GLP-1 drugs to meet their soaring demand, with documented shortages of both Ozempic and Wegovy.

The impact won’t be immediate. The parties expect the deal to close near the end of 2024. Novo Nordisk said it expects the three new sites to “gradually increase Novo Nordisk’s filling capacity from 2026 and onwards.”

As for the rest of Catalent — nearly 50 other sites employing thousands of workers — Novo Holdings will take control. The group previously acquired Altasciences in 2021 and Ritedose in 2022, so the Catalent deal builds on a core investing interest in biopharma services, Novo Holdings CEO Kasim Kutay told Endpoints News.

Kasim Kutay

When asked about possible site closures or layoffs, Kutay said the team hasn’t thought about that.

“That’s not our track record. Our track record is to invest in quality businesses and help them grow,” he said. “There’s always stuff to do with any asset you own, but we haven’t bought this company to do some of the stuff you’re talking about.”

What does it mean for Catalent’s customers? 

Until the deal closes, Catalent will operate as a standalone business. After it closes, Novo Nordisk said it will honor its customer obligations at the three sites, a spokesperson said. But they didn’t answer a question about what happens when those contracts expire.

The wrinkle is the long-term future of the three plants that Novo Nordisk is paying for. Those sites don’t exclusively pump out Wegovy, but that could be the logical long-term aim for the Danish drugmaker.

The ideal scenario is that pricing and timelines remain the same for customers, said Nicole Paulk, CEO of the gene therapy startup Siren Biotechnology.

Nicole Paulk

“The name of the group that you’re going to send your check to is now going to be Novo Holdings instead of Catalent, but otherwise everything remains the same,” Paulk told Endpoints. “That’s the best-case scenario.”

In a worst case, Paulk said she feared the new owners could wind up closing sites or laying off Catalent groups. That could create some uncertainty for customers looking for a long-term manufacturing partner.

Are shareholders and regulators happy? 

The pandemic was a wild ride for Catalent’s stock, with shares surging from about $40 to $140 and then crashing back to earth. The $63.50 share price for the takeover is a happy ending depending on the investor.

On that point, the investing giant Elliott Investment Management is satisfied. Marc Steinberg, a partner at Elliott, called the agreement “an outstanding outcome” that “clearly maximizes value for Catalent stockholders” in a statement.

Elliott helped kick off a strategic review last August that culminated in the sale agreement. Compared to Catalent’s stock price before that review started, the deal pays a nearly 40% premium.

Alessandro Maselli

But this is hardly a victory lap for CEO Alessandro Maselli, who took over in July 2022 when Catalent’s stock price was north of $100. Novo’s takeover is a tacit acknowledgment that Maselli could never fully right the ship, as operational problems plagued the company throughout 2023 while it was limited by its debt.

Additional regulatory filings in the next few weeks could give insight into just how competitive the sale process was. William Blair analysts said they don’t expect a competing bidder “given the organic investments already being pursued at other leading CDMOs and the breadth and scale of Catalent’s operations.”

The Blair analysts also noted the companies likely “expect to spend some time educating relevant government agencies” about the deal, given the lengthy closing timeline. Given Novo Nordisk’s ascent — it’s now one of Europe’s most valuable companies — paired with the limited number of large contract manufacturers, antitrust regulators could be interested in taking a close look.

Are Catalent’s problems finally a thing of the past?

Catalent ran into a mix of financial and operational problems over the past year that played no small part in attracting the interest of an activist like Elliott.

Now with a deal in place, how quickly can Novo rectify those problems? Some of the challenges were driven by the demands of being a publicly traded company, like failing to meet investors’ revenue expectations or even filing earnings reports on time.

But Catalent also struggled with its business at times, with a range of manufacturing delays, inspection reports and occasionally writing down acquisitions that didn’t pan out. Novo’s deep pockets will go a long way to a turnaround, but only the future will tell if all these issues are fixed.

Kutay said his team is excited by the opportunity and was satisfied with the due diligence it did on the company.

“We believe we’re buying a strong company with a good management team and good prospects,” Kutay said. “If that wasn’t the case, I don’t think we’d be here.”

Amber Tong and Reynald Castañeda contributed reporting.

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Petrina Kamya, Ph.D., Head of AI Platforms at Insilico Medicine, presents at BIO CEO & Investor Conference

Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb….



Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb. 26-27 at the New York Marriott Marquis in New York City. Dr. Kamya will speak as part of the panel “AI within Biopharma: Separating Value from Hype,” on Feb. 27, 1pm ET along with Michael Nally, CEO of Generate: Biomedicines and Liz Schwarzbach, PhD, CBO of BigHat Biosciences.

Credit: Insilico Medicine

Petrina Kamya, PhD, Head of AI Platforms and President of Insilico Medicine Canada, will present at the BIO CEO & Investor Conference happening Feb. 26-27 at the New York Marriott Marquis in New York City. Dr. Kamya will speak as part of the panel “AI within Biopharma: Separating Value from Hype,” on Feb. 27, 1pm ET along with Michael Nally, CEO of Generate: Biomedicines and Liz Schwarzbach, PhD, CBO of BigHat Biosciences.

The session will look at how the latest artificial intelligence (AI) tools – including generative AI and large language models – are currently being used to advance the discovery and design of new drugs, and which technologies are still in development. 

The BIO CEO & Investor Conference brings together over 1,000 attendees and more than 700 companies across industry and institutional investment to discuss the future investment landscape of biotechnology. Sessions focus on topics such as therapeutic advancements, market outlook, and policy priorities.

Insilico Medicine is a leading, clinical stage AI-driven drug discovery company that has raised over $400m in investments since it was founded in 2014. Dr. Kamya leads the development of the Company’s end-to-end generative AI platform, Pharma.AI from Insilico’s AI R&D Center in Montreal. Using modern machine learning techniques in the context of chemistry and biology, the platform has driven the discovery and design of 30+ new therapies, with five in clinical stages – for cancer, fibrosis, inflammatory bowel disease (IBD), and COVID-19. The Company’s lead drug, for the chronic, rare lung condition idiopathic pulmonary fibrosis, is the first AI-designed drug for an AI-discovered target to reach Phase II clinical trials with patients. Nine of the top 20 pharmaceutical companies have used Insilico’s AI platform to advance their programs, and the Company has a number of major strategic licensing deals around its AI-designed therapeutic assets, including with Sanofi, Exelixis and Menarini. 


About Insilico Medicine

Insilico Medicine, a global clinical stage biotechnology company powered by generative AI, is connecting biology, chemistry, and clinical trials analysis using next-generation AI systems. The company has developed AI platforms that utilize deep generative models, reinforcement learning, transformers, and other modern machine learning techniques for novel target discovery and the generation of novel molecular structures with desired properties. Insilico Medicine is developing breakthrough solutions to discover and develop innovative drugs for cancer, fibrosis, immunity, central nervous system diseases, infectious diseases, autoimmune diseases, and aging-related diseases. 

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Another country is getting ready to launch a visa for digital nomads

Early reports are saying Japan will soon have a digital nomad visa for high-earning foreigners.



Over the last decade, the explosion of remote work that came as a result of improved technology and the pandemic has allowed an increasing number of people to become digital nomads. 

When looked at more broadly as anyone not required to come into a fixed office but instead moves between different locations such as the home and the coffee shop, the latest estimate shows that there were more than 35 million such workers in the world by the end of 2023 while over half of those come from the United States.

Related: There is a new list of cities that are best for digital nomads

While remote work has also allowed many to move to cheaper places and travel around the world while still bringing in income, working outside of one's home country requires either dual citizenship or work authorization — the global shift toward remote work has pushed many countries to launch specific digital nomad visas to boost their economies and bring in new residents.

Japan is a very popular destination for U.S. tourists. 


This popular vacation destination will soon have a nomad visa

Spain, Portugal, Indonesia, Malaysia, Costa Rica, Brazil, Latvia and Malta are some of the countries currently offering specific visas for foreigners who want to live there while bringing in income from abroad.

More Travel:

With the exception of a few, Asian countries generally have stricter immigration laws and were much slower to launch these types of visas that some of the countries with weaker economies had as far back as 2015. As first reported by the Japan Times, the country's Immigration Services Agency ended up making the leap toward a visa for those who can earn more than ¥10 million ($68,300 USD) with income from another country.

The Japanese government has not yet worked out the specifics of how long the visa will be valid for or how much it will cost — public comment on the proposal is being accepted throughout next week. 

That said, early reports say the visa will be shorter than the typical digital nomad option that allows foreigners to live in a country for several years. The visa will reportedly be valid for six months or slightly longer but still no more than a year — along with the ability to work, this allows some to stay beyond the 90-day tourist period typically afforded to those from countries with visa-free agreements.

'Not be given a residence card of residence certificate'

While one will be able to reapply for the visa after the time runs out, this can only be done by exiting the country and being away for six months before coming back again — becoming a permanent resident on the pathway to citizenship is an entirely different process with much more strict requirements.

"Those living in Japan with the digital nomad visa will not be given a residence card or a residence certificate, which provide access to certain government benefits," reports the news outlet. "The visa cannot be renewed and must be reapplied for, with this only possible six months after leaving the countr

The visa will reportedly start in March and also allow holders to bring their spouses and families with them. To start using the visa, holders will also need to purchase private health insurance from their home country while taxes on any money one earns will also need to be paid through one's home country.

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